Supreme Court ruling makes need for Competition Act reform urgent

January 16, 2018 5.41pm EST

A Supreme Court of Canada ruling has triggered long-dormant provisions in the Competition Act that make preventing monopolies more difficult, especially in vulnerable media industries.
(Bank Phrom/Unsplash)

Supreme Court ruling makes need for Competition Act reform urgent

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Marc Edge does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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History’s habit of repeating itself has once again hamstrung Canadian antitrust law when it comes to preventing media monopolies. This time, however, the Supreme Court of Canada has left the door wide open to further increases in our already world-leading level of media ownership concentration.

The court’s decision three years ago to allow Tervita Corp., an environmental waste company, to operate a hazardous waste landfill site in northern British Columbia created a monopoly.

The ruling was hardly noticed at the time beyond the competition law community. But it triggered long-dormant provisions in the Competition Act that make preventing monopolies more difficult, especially in vulnerable media industries.

The decision set a precedent that prioritizes cost-cutting efficiencies and was soon followed, perhaps not coincidentally, by federal approval of yet another “devastating” news media merger, as a parliamentary report would describe it.

This emphasizes once again the urgent need for reform of the Competition Act, something that’s been recommended by successive federal media inquiries dating back a dozen years. After all, covering the news more “efficiently” with fewer and fewer journalists employed by bigger and bigger media monopolies can’t be good for democracy.

When the Competition Act was introduced in 1986, its aim was to use civil procedures such as court orders to prevent monopolies more effectively than the old antitrust law had by using criminal charges.

No merger case had ever been successfully prosecuted in 76 years under the Combines Investigation Act due to the criminal burden of proof beyond a reasonable doubt. The civil test is lower — proof on a balance of probabilities.

Irvings were convicted

The Combines Investigation Act had been rendered ineffective against media monopolies, in particular by a 1972 Supreme Court of Canada ruling. Prosecutors obtained a conviction on charges of monopoly against the Irving Oil family, which had acquired all five daily newspapers in New Brunswick.

It was overturned on appeal, however, after the Supreme Court ruled the Crown must prove not only a lessening of competition but also a detriment to the public. The Irving media monopoly persists to this day as a result, allowing little news coverage of the family’s provincial dominance.

The late K.C. Irving, whose first business venture involved backyard duck breeding, ended up controlling vast lumber, oil, shipping and transportation interests in his native New Brunswick, in Quebec and in Maine.(CP PHOTO)

The Competition Act, according to one legal scholar, “literally rewrote the book on competition law in Canada, particularly with regard to merger control and the review of the activities of dominant firms.” It has unfortunately proved just as incapable of preventing media monopolies, however, and now the Supreme Court has made its job even more difficult, if not impossible.

As a 2006 Senate report on news media pointed out, the Competition Act considers only economic factors, such as advertising revenues, in reviews of mergers and takeovers. “The result,” the senators noted, “has been extremely high levels of news media concentration in particular cities or regions.” They recommended that media mergers be reviewed by experts who take into account the public interest.

Postmedia takeover of Sun Media approved

It didn’t happen because a deregulationist Conservative government led by Stephen Harper had already come to power in Ottawa and would hold it for almost a decade. It presided over even more consolidation of Canada’s newspaper ownership, including the takeover of our largest and then second-largest chain by U.S. hedge funds, despite supposed limits on foreign ownership.

It oddly concluded the sale was “unlikely to substantially lessen or prevent competition.” This despite it giving Postmedia 21 of the country’s 25 largest newspapers, including eight of the nine largest in Western Canada and both dailies in four of our six largest cities.

Postmedia said it expected to save $6-10 million in cost cutting efficiencies from the takeover. It promised, however, to maintain separate newsrooms at the competing newspapers it acquired in Calgary, Edmonton and Ottawa, as its dailies in Vancouver had for decades, by government order.

Falling ad revenues, however, soon forced Postmedia to seek another $50 million in efficiencies, mostly to service the company’s massive high-interest debt held by its hedge fund owners. It thus announced in early 2016 that, despite promising not to, it would merge the newsrooms of its four newspaper duopolies, including in Vancouver.

A parliamentary committee chaired by Vancouver MP Hedy Fry quickly convened hearings in Ottawa into media and local communities, which sat for 16 months. Competition Bureau officials testified they were powerless to stop the consolidation. The Fry committee’s report issued in mid-2017 renewed the call made by senators for reform of the Competition Act.

‘Devastating’ news merger

My research has found that a Supreme Court of Canada ruling in the case of Tervita v. Canada set a precedent against preventing what the Fry report called a “devastating” news media merger. Even worse, the ruling enables even more mergers by badly hobbling the Competition Bureau.

The judgment was delivered in early 2015, even as Postmedia’s takeover of Sun Media was under review. In allowing the hazardous waste monopoly the Competition Bureau had blocked, the Supreme Court required the feds to quantify the anti-competitive effects of a merger or takeover. If their calculated dollar value does not outweigh the efficiencies acquiring companies can show will result from the deal, it must be allowed despite otherwise amounting to an illegal monopoly.

The so-called “efficiencies” defence had always been in the Competition Act, but it went untested for almost 40 years before the Supreme Court ruling gave it life. The defence was “unique among competition/antitrust statutes around the world,” according to one analysis.

‘Rock stars’

It was included because the government “had high hopes that it would play a significant role in facilitating efficient restructuring in Canada.” Those hopes went unrealized, however, and with the Tervita ruling the provision seems to have now backfired.

The ruling put Canadian merger law, according to a pair of economists, “far out in front of the wave” of integrating economic principles into merger law. It prompted Competition Bureau head John Pecman to boast in a speech to lawyers that economists are now the “rock stars of competition law enforcement.”

Those rock stars, however, did not quantify the anti-competitive effects of the Sun Media takeover to weigh them against Postmedia’s corporate efficiencies. They conducted a market analysis (which they have refused to release) and rubber-stamped the deal using some very questionable logic.

The savings available from mergers of news media companies are considerable, but they invariably involve cuts to journalism.

The cost to the public of a reduction in news coverage is arguably the impairment of democracy. But how do you put a dollar figure on that?